Govt’s retirement income uncertainty a recipe for confusion

ANZ Wealth has warned that indecision over the form the Government’s intended new retirement income framework will take is making their clients nervous, as the industry experiences uncertainty regarding what has happened in the area.

In a strategy article for ANZ Wealth, Troy Smith wrote that the process of developing a new framework started “several years ago” as the Government sought a solution which “provided consumers a greater choice of retirement income products, which are intended to increase an individual’s standard of living during retirement”.

Over that time, the Government had released a number of papers which Smith cautioned could have confused advisers.

“This has led to some confusion in the industry about where we have landed, and what is merely proposed and what has been legislated,” the article said.

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Smith outlined the options currently considered by the Government. These included:

• A Deferred Lifetime Annuity (DLA), which the Government had encouraged more use of through extending the tax exemption on earnings in the retirement phase to DLAs;
• Innovative retirement income streams;
• Comprehensive Income Products for Retirement (CIPRs), which sit under the MyRetirement framework; and
• MyRetirement, which was thought to better represent the objective of developing a suite of retirement solutions for members than CIPRs, hence the name change.

The article also said that the Government had proposed to amend the assessment of lifetime income streams from 1 July, 2019, while existing streams would be grandfathered.

The Government also planned to introduce a retirement income covenant intended to require trustees to consider the retirement income needs and preferences of their members to assist members to meet those needs and manage longevity risk.

Smith warned that the indecision over the various options outlined above and which to pursue had left both practitioners and clients uncertain.

“The industry is undecided what the final form of reforms will look like. Some argue that CIPRs will never come into existence, whilst others argue that CIPRs are required to protect retirees from market risk,” the article said.

“Either way, significant changes are likely to be made to the retirement sector, which always makes our clients nervous.”